Microeconomics: Theory and Applications with Calculus, 4e

11.1 Monopoly Profit Maximization

Competitive firms and monopolies alike maximize their profits using a two-step procedure (Chapter 8). First, the firm determines the output at which it makes the highest possible profit. Second, the firm decides whether to produce at that output level or to shut down, using the rules described in Chapter 8.

For a competitive firm, we distinguished between a lowercase q, which represented a firm’s output, and an uppercase Q, which reflected the market quantity. Because a monopoly sells the entire market quantity, we use Q to indicate both the monopoly’s quantity and the market quantity.

The Necessary Condition for Profit Maximization

A monopoly’s first step is to pick its optimal output level. A monopoly, like ...